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What are some examples of the cons of having an international business that deals with...

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avde94 | Student, Undergraduate | (Level 1) Honors

Posted March 5, 2013 at 5:30 AM via web

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What are some examples of the cons of having an international business that deals with goods?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted March 5, 2013 at 5:40 AM (Answer #1)

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The major problem with having an international business that deals in goods rather than services is that goods must be shipped around the world.  This causes problems that are not present if your firm is dealing in services.  Let us look at a few examples:

When a firm is dealing in goods, its goods can hit bottlenecks in other countries.  The current situation in the US with the “sequester” is an example of this.  There is some fear that customs inspectors will be laid off and it will take a long time for ships to be cleared to enter port and unload their cargos.  This will raise the cost of shipping, which will harm firms that have to ship their goods.

When a firm is dealing in goods, there is also the chance of loss or spoilage along the way.  It is possible, for example, that a cargo, or some part of a cargo, will be stolen while it awaits shipping or while it is being shipped.  This is a problem that does not come up if a firm is dealing in services.

Finally, a firm shipping goods is more likely to be impacted by changes in shipping costs than one that deals in services.  If the price of oil goes up, for example, it will cost more to ship goods.  This will be particularly problematic for firms that ship bulky goods that do not have a high value per unit of weight.  Things like coal and iron ore might qualify in this regard.

Thus, companies that import and export goods face potential problems relating to shipping that are not faced by companies that deal in services.

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